This story first appeared in The Investigator, a weekly newsletter by Spotlight PA featuring the best investigative and accountability journalism from across Pennsylvania. Sign up for free here.
STATE COLLEGE — Penn State is prepared to take on up to $700 million in debt to renovate Beaver Stadium, a price tag drawing scrutiny at a time when the university is implementing steep budget cuts and offering buyouts to some employees.
The school has emphasized that the athletics department, which has a self-sustaining budget, will pay back the debt and interest incurred through the renovation process. Students’ tuition and taxpayer dollars will not fund the project, the university has said.
However, Penn State University is likely to take on the necessary debt rather than the athletics department. One expert told Spotlight PA this setup is typical for universities and allows an organization like Penn State to secure better financing costs.
Penn State generally uses its standing as a public university with tens of thousands of tuition-paying students to secure bonds and provide financial backing for debt, according to a review of bond documents. For example, last year Penn State sold $204 million in bonds under the university’s authority. That sale was used in part to finance “replacements to and renovations of Beaver Stadium,” though the university said at the time the bonds would be repaid by athletics.
Penn State declined to make an official available for an interview for this story. A university spokesperson wrote in an email that the university’s support for the project “is a signal of the commitment to bettering our student-athletes’ experience and as a land-grant university, elevating Beaver Stadium’s significance in driving local and state economies.”
Christopher Collins, vice president and senior municipal credit analyst at Moody’s Ratings, told Spotlight PA that although universities could have specific departments take out debt — perhaps as a way to increase accountability — issuing bonds through the entire university lowers financing costs. A university generally has a better credit rating, and a wider source of possible repayment, than a specific department, said Collins, who has analyzed Penn State’s credit rating.
Some university trustees questioned what would happen if Penn State defaults on the debt. Penn State’s athletic department reported $126,000 in profit off of a $202 million total budget in fiscal year 2023.
Jay Paterno, an alumni-elected trustee, told the Wall Street Journal: “It’s hard to project 30 months, even 30 weeks, let alone 30 years. You don’t want to be the most leveraged university in this new world.”
Penn State considered risk factors with the project and “mitigation plans are in place that have zero impact on tuition dollars or state funding,” the university spokesperson told Spotlight PA. The university declined to provide more specific information about these mitigation plans except that they include “finding other revenue sources and reducing expenses.”
“Even if temporarily we had to let athletics borrow [from the school], we would do it with nontuition, nonstate education dollars,” Sara Thorndike, Penn State senior vice president for finance and business, told the Wall Street Journal.
Penn State has not yet issued the bonds, according to the Municipal Securities Rulemaking Board, and documents related to the bonds would detail how the debt would be repaid in the event of default.
Penn State’s financial standing is strong despite cuts by the administration to lessen the budget deficit, Collins said. The university maintains an “Aa1” rating, the second highest possible rating, he said.
“The credit quality of Penn State is exceptionally high, meaning that the likelihood of them defaulting is very, very low,” Collins said.
